COVID Phase 2: Time for a Hard-Nosed Look at Why COVID in the Poor World Matters So Much to the Rich

Within the rich world, the COVID-19 pandemic is expected to pass its peak over the next month. But then the ‘COVID phase 2’ period begins, and it will be brutal. It will be brutal because the pandemic will then be approaching a peak in the emergent economies and the developing world, and whatever the severity of COVID-19s public health impact on those countries, they are already hobbled by the lockdown measures and the economic impacts caused by them. Michael Clarke outlines some of the further geopolitical effects of the current pandemic crisis.

It is difficult to take WHO numbers for COVID-19 infections in the emergent and developing countries seriously, chiefly because reporting systems are generally so inadequate that in many cases particular numbers are effectively meaningless. There is general agreement that the virus, perhaps a single teaspoonful in total, as Helen Ramscar points out in her analysis, now exists in over 202 different countries – so it is effectively everywhere. In late March, the best estimates put the potential global death toll from COVID-19 at around 40 million during this year, if no mitigation measures had been taken – akin to the deaths from Spanish flu a century ago. If, on the other hand, all countries adopted early and aggressive counter-measures, that figure could drop to as low as 1.3 million. But in the event, not all governments acted early and aggressively and, as seems more likely, most countries will only deploy passive measures to delay the virus rather than interrupt it. On this basis, the global death toll is likely to be in the region of 20 million.[1] And even then, when the immediate pandemic has passed, health authorities in all countries must go out looking for COVID-19, to find it, isolate its carriers and destroy it with tight containment and/or vaccine. As it happens, some sub-Saharan countries in Africa have considerable experience in doing this from other cases, but it is not likely to happen everywhere without significant mobilisation of an international effort.

It is a commonplace observation that public health facilities in many of the emergent and developing countries are woefully deficient. Any selection of comparative statistics shows startling but typical discrepancies between rich and poor. Average high-income countries face having their critical care beds overloaded by 7:1 at the peak of the crisis; averagely poor countries face a 25:1 overloading.[2] More than scarce doctors, and particularly relevant in this crisis, poor societies throughout the world are chronically short of trained nurses. International nursing expertise has long been soaked up by the health services of the G20 countries, and there is a critical, global shortage of around 9 million nurses and midwives.[3] And so on, and so on.

For the rich world, this crisis begins with a public health emergency and then becomes an economic impact crisis, since G20 countries have the credit and the monetary tools to buy themselves some time before they have to face the economic reckoning. But for the mid-income and poor countries, they get both types of crisis the other way round, with no period of grace to prepare – a massive economic hit from the world economy, their own national lockdowns, and then the accompanying public health crisis that is all the more insidious for being hard to calculate and track.

The Poor Countries are Significantly Different to the Rich in the COVID-19 Crisis

Aside from the obvious differences in levels of development between rich and poor worlds, there are some other major factors that bear greatly on the way this crisis will play out globally.

Ongoing conflicts across the world are all occurring within the territories of poorer countries; in major conflicts in Yemen, Libya, the Sahel countries, South Sudan, Iraq, Syria and Afghanistan, and in lower intensity, ongoing conflicts in countries such as Columbia, Cameroon and the Philippines. Conflicts make any government’s mitigation policies difficult or impossible to implement. They have created the highest ever recorded levels of internally displaced peoples and international refugees. There are currently 41 million internally displaced people in the world as a result of conflict; and 33 million refugees and asylum seekers. Around half of those 33 million people are attributable to the particular conflicts in Syria, Afghanistan and South Sudan, and fully 80% of all refugees live in countries directly bordering the conflict areas.[4] They spawn camps and shanty towns of the dispossessed where it is physically impossible to create social distancing or basic hygiene, let alone the special measures required to ward off high levels of COVID-19 contagion.

Patterns of urbanisation are another significant asymmetry between the G20 and the rest. While European countries are 85% urbanised, as opposed to a developing world average of around 60%, urban living in poorer countries is of a different order of organisation, where lockdown and distancing policies will be naturally less effective. Just think about Lagos, Rio, Dhaka, Mumbai or even Johannesburg. And if anything, this difference is exacerbated in rural areas. European and North American ‘countryside’ areas are largely organised and relatively safe in a public health emergency. Quite the opposite is true in large parts of Asia, Latin America and sub-Saharan Africa. Where city-dwellers take the virus into rural areas there are normally even fewer ways for governments to make a lockdown stick.

Unemployment levels are a further asymmetry. While most G20 countries have seen falling levels of unemployment since the 2008 economic crisis, with global unemployment falling from 8% in 2010 to 5.5% in 2019, the greatest burdens of unemployment – the ‘flexibility’ of global labour markets – have been felt in some of the poorest countries. Unemployment rates are difficult to define in these societies, but before the COVID-19 crisis struck, the International Labour Organisation estimated 2019-2020 unemployment in most poor and emergent economies to be around 15% of the global labour force (about 470 million people effectively unemployed within a global labour force of 3.1 billion) with 630 million – about 20% of the labour force, and rising – occupying highly vulnerable jobs and living in what it defines as ‘working poverty’.[5]

Many emergent and less developed countries therefore face the economic consequences of COVID-19 on the basis of already high unemployment and ‘vulnerable employment’. Loss of jobs and individual income is the first and most dramatic economic consequence of any national lockdown. Then too, and unlike their G20 counterparts, governments in the poorer world have few effective fiscal levers they can pull to buy time before the economic reckoning. They cannot pay to ‘furlough’ workers at levels that will encourage rapid bounce-back. They cannot take on the prodigious levels of debt available to the rich world without risking a collapse in their credit ratings and the spectre of sovereign default – even if credit were available.

The major international organisations cannot offer more than stopgap loans, though they have all made gestures, internationally and regionally. The IMF announced a $500 million package of debt relief for poorer countries, financed mainly by the US, the UK and Japan – though it will struggle to achieve a consensus with the Trump Administration to do much more. In contrast, the World Bank put in place a $14 trillion package of immediate assistance for the crisis, some of which would find its way into the poorer world, but mainly via international companies and G20 national economic recovery.[6] For the moment, the Fed in the US is buying its own junk bonds to prevent defaults. It certainly won’t buy anyone else’s junk as well.

If COVID-19 is about to sweep right through Latin America, West and Central Asia and the Middle East and North Africa – or if it is already doing its worst in some of those regions, and will only become apparent very soon – then serious destabilisation within many countries can be expected. G20 governments have their own problems of credibility, but many governments in the poorer world are deeply distrusted, and largely ignored, by their own citizens.

In truth, tight lockdown policies and effective public health information campaigns are simply implausible for many poorer countries in the world already reeling from economic shock and about to be afflicted with a new plague. One certainty they have going for them is a youthful age structure, which might serve to mitigate the worst social effects of the virus and allow a ‘herd immunity’ to be built up over the coming years less brutally than in older, richer societies. And one possibility they might have going for them is that the three current strains of COVID-19 could reduce to the two less harmful ones (as the most deadly strain burns itself out in those it kills) which might simultaneously turn out to be less virulent in warmer climates. If the potency of the virus diminishes as it ages, as most viruses do, this may offer poorer countries a softer landing from the public health crisis. In both cases, only time will tell. But one certainty and a possibility are not much to set against the immediacy of the economic hurricane now blowing against them. The IMF’s interim World Economic Outlook for 2020 calculates a 3% contraction in the world economy; ‘much worse’, it says, than in the 2008 economic crisis.[7] This includes a decline in global growth from 3.7% to 1%, based on the most optimistic assumptions that COVID is properly dealt with; and a decline from 5.5% to 1.0% even in the richer ‘emergent Asian’ economies, which have been the engine of growth since 2010.[8]For the first time in 60 years, the IMF forecasts that there will be no growth in the region of Asia as a whole during 2020.[9]

What About India?

With 1.4 billion people and a society that is simultaneously both ‘first world’ and ‘third world’, the fate of India in the COVID-19 crisis matters a great deal – to the emerging countries and the rest of the rich world alike. With the world’s second largest population, India spends only 1.3% of its GDP on healthcare, among the lowest in the world. Nevertheless, Indian government sources and friendly press have been congratulating themselves that their COVID-19 numbers are presently low and infection rates appeared to be slowing.[10] But that might be a function of poor reporting as well as a time lag in impact. The next two months will resolve those questions.

More to the point, Indian economic growth was already struggling before the lockdown was precipitously announced on 24 March. Its annual growth rate had fallen to something around 4.3% (the lowest since 2013) by the time of the first lockdown. When that was extended with some partial exceptions on 14 April, annualised growth estimates up to Q2 (June) in 2020 were estimated to be drifting down to something between 2.5% and 1% – which would be the worst for 40 years.[11] And this assumes that current lockdown measures are successful and more draconian ones will not be necessary. Unemployment was running at over 6% and India’s large (and growing) fiscal deficit was already 30% over budget.

The lockdown is particularly harsh on India’s huge community of small and medium enterprises and many of its service sector businesses, since a high proportion of Indian companies are already famously debt-laden. It is potentially disastrous to India’s 350 million ‘informal workers’ who have little choice but to live (and work) with contagion, or face a collapse in their income. Manufacturing, construction, retail, leisure and tourism sectors have been devastated by the lockdown. India was already suffering growing political volatility, not least in Kashmir, as a result of the assertive Hindu nationalism of Prime Minister Narendra Modi’s BJP. Economic slowdown can only make it worse.

The central government was slow to react to the danger when it was clear how contagious COVID-19 seemed to be, though some of the states, particularly Delhi and Kerala, appear to have been quicker and more proactive. Kerala state is being held up within India as an exemplar of good practice and, so far, has better statistics than elsewhere. Central government has created a $23 billion stimulus package for the economy, but at 0.7% of India’s GDP that will scarcely be enough and is a lot less than other big countries are putting into their economies. On the other hand, India cannot go on a major borrowing spree without facing a further crisis in its creditworthiness. And any Chinese financial help (attractive to many other states) would be anathema to the Indian political establishment and would certainly come with long strings.

On its previous economic trajectory, India was on track to account for at least 10% of global GDP by 2023 (with China at 21% and the US at 13%).[12] It matters to the global economy that India is not thrown into an economic catastrophe by the COVID-19 crisis. And it matters just as much to global public health that India does not become the next epicentre of the pandemic, making it all but certain that the virus would double back into the G20 countries. Unless the ‘certainty’ and the ‘possibility’ mentioned above play out in India’s favour, the world will genuinely be hoping that the upbeat assessments of Modi’s government do not turn out to be mere autocratic bravado.

These Asymmetries Matter Directly to the Rich Countries

Quite apart from a common humanity concern for the desperate plight of the peoples of the emergent and developing countries, some urgent security imperatives for all G20 leaders arise from these asymmetries in the next phase of the COVID-19 crisis.

From a public health perspective, we know that this virus is unusually contagious, at least ten times more lethal than seasonal flu, and that it will persist in some form until it is controlled or eliminated – not just by the discovery and development of an effective vaccine, but by its extensive use across the global population.

The rich world is probably facing diminishing waves of COVID-19 as lockdowns are progressively lifted. But if it is not dealt with just as efficiently in the poorer world – which seems very unlikely – there is every likelihood that the virus will, indeed, double back into rich world societies before any widespread vaccine programme could take effect. If the current crisis has taught us anything about globalisation, it is that human physical interconnectedness is a great deal higher and more intense than was previously supposed. Even when rich states ‘close their borders’, the effects are relative rather than absolute. If COVID-19 runs out of control across large parts of the poorer world, the G20 could not simply assume a fortress posture without being constantly penetrated; and a fortress mentality would certainly prolong the economic harm G20 countries will anyway suffer.

From the perspective of economic recovery, the immediate knock-on effects on G20 countries are also daunting. Access to raw materials may be interrupted, even during a slump in commodity prices. Oil prices have slumped from a sustainable 29% growth in 2018 to a loss of -10% in 2019 and a projected -42% loss during 2020. Non-fuel commodities have seen a 1.3% price growth in 2018 transformed into a -1.1% decline for 2020.[13] Falling commodity prices do not always indicate easy availability; in the case of many commodities they provoke disinvestment, bankruptcies and the closing and disruption to supply chains. Commodity prices are projected to recover in 2021, but a lot of political damage is also likely to be done in the meantime.

World trade figures are equally challenging, where a modest global growth in trade volumes of 3.8% in 2018 is projected to become a -11% decline for 2020. Much has been made by Beijing that China is starting up its economic engines again, which is welcome. But the emerging markets and developing economies have seen import growth of 5.1% in 2018 decline to -0.8% in 2019 and are looking at a dramatic -8.2% figure for 2020. Export growth figures for the same period slump from 4.1% in 2018 to -0.8% and then -9.6% for 2020.[14]

Whether from a public health, or an economic, perspective there seems to be little rational choice but for the rich world to engage proactively and aggressively in helping poor societies insulate COVID-19 as far as possible, so that it can then be eliminated or diminished to manageable proportions. The political and social jolt to western societies of more lockdowns, and to the world economy of the disruption already foreseeable for the rest of 2020, should spur G20 leaders to joint efforts that have so far been conspicuously absent. And joint efforts should be undertaken soon – certainly sooner than would be the case if leaders wait to emerge from their own national struggles with COVID-19.

Michael Clarke is professor of defence studies, distinguished fellow at RUSI and co-author of Tipping Point: Britain, Brexit and Security in the 2020s.